Understanding Emini S&P Gaps

By Lawrence

Emini S&P trades almost 24 hours a day, 5 days a week but it is separated into two trading sessions. The session Regular Trading Hours (RTH) is linked to the normal business hours for which the US stock market is open. This is similar to the usual 9 to 5 business hours with the closing time ends one hour early at 4 pm instead of 5 pm. This practice comes from a time that an hour is needed to make sure all trading done during the day is taken care of properly. The other session is known as the After Hours (AH) which cover the rest of the trading time. A gap happens when there is a difference between the RTH opening price and the RTH closing price from the prior trading day. A gap is filled when price moves back to the previous closing price.

Gaps happen all the time. It happens even before the introduction of electronic trading with the original S&P index future contract which did not have AH session at all. Gaps happen for many reasons. It can be caused by news from an important component company of S&P 500 that drives the opening price of many stocks higher (or lower). It can be caused by news of economic data reported by the government painting the economy in a certain way that the investors choose to react to the news.

It is well known among day traders gaps are often filled in the same trading day. It was one of the easy money trading tricks back in the 1990s. Since then many things has changed, so do the way gaps behave. To be able to utilize the information provided by the gaps properly, as oppose to blindly fading the gaps at open, one has to understand where gaps come from and why they used to be filled quickly.

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